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Investing in MUTUAL FUNDS

a_lacsa · 294 · 123837


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on: Mar 13, 2005, 12:26 PM
I have prepared a really helpful document for those who are interested in investing in MUTUAL FUNDS. You can read this before you may want to invest your hard earned money to MUTUAL FUNDS...

1.   Prospectus - The fund's selling document and contains information about costs,
risks, past performance, and the fund's investment goals. Read the prospectus before you invest.

2.   Net Asset Value per share (NAV) - NAV is the value of one share in a fund. When you buy shares, you pay the current NAV per share, plus any sales charge (also called a sales load). When you sell your shares, the fund will pay you NAV less any other sales load (See Part V "Comparing Different Funds"). A fund's NAV goes up or down daily as its holdings change in value.

3.   Derivatives - Financial instruments whose performance is derived, at least in part, from the performance of an underlying asset, security or index. Their value can be affected dramatically by even small market movements, sometimes in unpredictable ways. A fund's prospectus will disclose how it may use derivatives.

  • Mutual funds are NOT guaranteed or insured by any bank or
    government agency. Even if you buy through a bank and the
    fund carries the bank's name, there is no guarantee. You
    can lose money.
  • Mutual funds ALWAYS carry investment risks. Some types
    carry more risk than others.
  • Understand that a higher rate of return typically involves
    a higher risk of loss.
  • Past performance is not a reliable indicator of future
    performance. Beware of dazzling performance claims.
  • ALL mutual funds have costs that lower your investment
  • You can buy some mutual funds by contacting them directly.
    Others are sold mainly through brokers, banks, financial
    planners, or insurance agents. If you buy through these
    financial professionals, you generally will pay an extra
    sales charge for the benefit of their advice.
  • Shop around. Compare a mutual fund with others of the
    same type before you buy.

  • Mutual funds are managed by professional money managers.
  • By owning shares in a mutual fund instead of buying individual
    stocks or bonds directly, your investment risk is spread out.
  • Because your mutual fund buys and sells large amounts of
    securities at a time, its costs are often lower than what you
    would pay on your own.


A mutual fund is a company that brings together money from many
people and invests it in stocks, bonds, or other securities.
(The combined holdings of stocks, bonds, or other securities and
assets the fund owns are known as its portfolio.) Each investor
owns shares, which represent a part of these holdings.


A fund may receive income in the form of dividends and
interest on the securities it owns. A fund will pay its
shareholders nearly all of the income it has earned in the form
of dividends.

The price of the securities a fund owns may increase.
When a fund sells a security that has increased in price, the
fund has a capital gain. At the end of the year, most funds
distribute these capital gains (minus any capital losses) to

If a fund does not sell but holds on to securities that
have increased in price, the value of its shares (NAV) increases.
The higher NAV reflects the higher value of your investment. If
you sell your shares, you make a profit (this also is a capital

Usually funds will give you a choice: the fund can send you
payment for distributions and dividends, or you can have them
reinvested in the fund to buy more shares, often without paying
an additional sales load.

8.   TAXES

You will owe taxes on any distributions and dividends in the year
you receive them (or reinvest them). You will also owe taxes on
any capital gains you receive when you sell your shares. Keep
your account statements in order to figure out your taxes at the
end of the year.

If you invest in a tax-exempt fund (such as a municipal bond
fund), some or all of your dividends will be exempt from federal
(and sometimes state and local) income tax. You will, however,
owe taxes on any capital gains.

    Low risks
    Limited by law to certain high-quality, short-term investments
    Investor losses have been rare, but they are possible
    Higher risks than money market funds
    Seek to pay higher yields
    NOT restricted to high-quality or short-term investments
    Most bond funds have credit risk
    Market value of the bonds they hold will go down when interest rates go up.
    More risk than money market or bond funds
    Offer the highest returns
    Historically stocks have performed better over the long term than other types of investments.
    Most bond funds have credit risk
    Market value of the bonds they hold will go down when interest rates go up.


Studies show that the future is often different than the past
This year's "number one" fund can easily become next year's below average fund


Check the fund's total return. Total return measures increases and decreases in the value of your investment over time, after subtracting costs.
See how total return has varied over the years. An impressive 10-year total return may be based on one spectacular year followed by many average years. Looking at year-to-year changes in total return is a good way to see how stable the fund's returns have been.


Costs are important because they lower your returns
A fund that has a sales load and high expenses will have to perform better than a low-cost fund, just to stay even with the low-cost fund.
Sales loads buy you a broker's services and advice; they do not assure superior performance.
Funds that charge sales loads have not performed better on average (ignoring the loads) than those that do not charge sales loads.


Front-end load - A sales charge you pay when you buy shares. Cannot be higher than 8.5% of your investment. Reduces the amount of your
investment in the fund.

Example: If you have $1,000 to invest in a mutual fund with a 5%
front-end load, $50 will go to pay the sales charge, and $950
will be invested in the fund.

Back-end load (deferred load) - A sales charge you pay when you sell your shares. Usually starts out at 5% or 6% for the first year and gets smaller each year after that until it reaches zero.

Example: You invest $1,000 in a mutual fund with a 6% back-end
load that decreases to zero in the seventh year. Let's assume for the purpose of this example that the value of your investment remains at $1,000 for seven years. If you sell your shares during the first year, you only will get back $940 (ignoring any gains or losses). $60 will go to pay the sales charge. If you sell your shares during the seventh year, you will get back $1,000.

Management fee - Pays for managing the fund's portfolio.
Rule 12b-1 fee - Used to pay commissions to brokers and other salespersons, and occasionally to pay for advertising and other costs of promoting the fund to investors. It usually is between 0.25% and 1.00% of assets annually. Funds with back-end loads usually have higher rule 12b-1 fees.

  • Beware of a salesperson who tells you, "This is just like a no-load fund." Even if there is no front-end load, check the fee table in the prospectus to see what other loads or fees you may have to pay.
  • Check the fee table to see if any part of a fund's fees or expenses has been aived. If so, the fees and expenses may increase suddenly when the waiver ends (the part of the prospectus after the fee table will tell you by how much).
  • Many funds allow you to exchange your shares for shares of another fund managed by the same adviser. The first part of the fee table will tell you if there is any exchange fee.
  • Shop wisely. Compare fees and expenses before you invest.
  • Read the sections of the prospectus that discuss the risks, investment goals, and investment policies of any fund that you are considering.
  • All mutual funds must prepare a Statement of Additional Information (SAI, also called Part B of the prospectus). It explains a fund's operations in greater detail than the prospectus. If you ask, the fund must send you an SAI.
  • Read its annual and semi-annual reports to shareholders.
  • Read investment books, investor magazines and newspapers.  The fund companies themselves can also provide information.

Remember: There are no guarantees in mutual fund investing.
Inform yourself and exercise your judgment carefully before you
« Last Edit: Nov 19, 2006, 05:36 PM by FutureGizmo »


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Reply #1 on: Mar 13, 2005, 04:02 PM
Thanks a_lacsa, for that post. That's a nice read for those wanting to get into mutual funds. Are you into mutual funds right now?

As for me, meron akong mutual fund investment sa Sunlife since last year. Kaya lang, wala ako access sa account ko kaya nde ko ma-check kung anu na nangyari. Tanda ko naman yung NAPV nung investment ko nung binili ko at compared sa present NAPV nung fund ko, mukha naman tumaas na.

Anyone into mutual funds? Share din kayo ng istorya nyo.


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Reply #2 on: Mar 13, 2005, 04:18 PM

thanks..  :D

actually, I do not have a mutual fund investment yet... I am just very interested and very eager to invest in it. Kaya nagresearch ako ng malupit tungkol sa mutual funds...

That document is the product of my research... I am also looking to investing in SunLife... parang mas maganda kc kaysa sa Philam...

I am still doing my research and still shopping around...

can you share some details about your mutual fund investment? I want to have an example that I can follow once I decide to invest in mutual funds...


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Reply #3 on: Mar 13, 2005, 11:16 PM
I am both in Sunlife's Bond Fund and Philippine Equity Fund. I actually wanted to put all my money in the Equity Fund but my agent advised me to simply put all of my money in the Bond Fund since the equity market is a bit volatile, according to him. I decided then to put 3/4 of my money in the Bond Fund and the remaining 1/4 to the equity fund. Fortunately, both have been doing well after I bought shares.

If you won't be needing your money in the next 5 years, I suggest you invest in the Equity Fund. If you are afraid of risks and volatility, though, and you think you'd cash out within the next 3 years, better go with the Bond Fund. I don't believe in the Balanced Fund thing, where you get to balance the risk and return in both the equity and bond market. My idea is that you either win big or lose big, so choose either the Bond or the Equity Fund. Placing your bets in the middle would simply give you modest returns.

Just my two cents.


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Reply #4 on: Mar 14, 2005, 12:45 AM
Thanks so much for that tip...

Am I right if I say that the minimum investment is Php 10,000? then will the recurring investments be required or is it just optional?


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Reply #5 on: Mar 14, 2005, 07:24 AM
Last time I checked, P10,000 nga yung minimum investment for all of Sunlife's Prosperity Funds. No, additional investment is not required. I'm not sure if the sales charge is to be paid every time you make an investment but I remember my agent telling me it's only a one-time payment, either prior to your first investment or when you redeem your entire investment. There's also a combination of both but I don't see the beauty of it.

Anyway, if the sales charge would be charged only one time, I suggest you put in a minimum investment first then choose the front sales load option. That way, your first investment will be charged with the sales load, then all your succeeding investments, no matter how big, would be free of charges already.

I'm not sure whether this is possible. Nde ko pa kasi nata-try kasi nde pa ako nagre-reinvest uli.


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Reply #6 on: Mar 14, 2005, 07:28 AM

thanks for that info.. ngayon clear na sa akin at reaady na ako.. natatakot kc ako dun sa recurring investments dahil baka mawalan ako ng pera e magkautang pa ako sa kanila... hehehehe

now all i need to do is go to them.. hehe

sa makati ka ba naginquire?


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Reply #7 on: Mar 14, 2005, 07:37 AM
Yes, I went directly to their Makati branch. Katawa nga e kasi nung day na nag-invest ako, nde inexpect nung agent na ako yung client. I called ahead before I went there, then nung naghihintay na ako sa lobby, dinaanan lang ako nung agent tapos sinabi dun sa guard na nagbabantay malapit sa upuan ko na kung dumating na yung client nya na nagi-inquire about Sunlife Funds e papasukin na nya diretso sa office.

Better to call ahead para me mimit na sa yo. Don't expect to start investing on the very day na pumunta ka sa office nila (which means you don't have to bring your money yet). They'll want you to read their prospectus first and answer some forms tapos saka ka balik anytime you want. In my case, I came back the next day and gave them my investment.


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Reply #8 on: Mar 14, 2005, 08:26 AM
WHy naman hindi ka nakilala ng agent? Baka pag ako nagpunta lalo akong hindi makilala. Hindi kasi ako mukhang mayaman na investor, e. Siguro yng agent nila, tumitingin din sa hitsura, no? Ano yung hitsura mo nung pumunta ka don? (curious lang)

Siguro maganda rin kung pede tayo magpost ng picture natin dito para magkakakilala tayo. Malay natin, andyan lang pala tayo sa tabi tabi, di ba?



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Reply #9 on: Mar 14, 2005, 08:47 AM
haha tama ka jan earn4real,

ako ang tingin ko jan sa mga agent e tumitingin nga rin yan sa ichura.. kung mukha kang mayaman, shempre papansinin ka agad kc ang notion sa mga investors e mayayaman.


future nako tlgang napakalaking tulong ng mga sinsabi mo sa akin.. now I really want to invest. ilalagay ko muna ung ibang money ko sa studiotraffic. then ung mga iba naman, iinvest ko na para meron akong long term investment.

makakalimutin kc ako kaya alam kong matutuwa ako kapag lumaki na ung value ng investment ko... hehehe


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Reply #10 on: Mar 14, 2005, 08:56 AM
earn4real, a_lacsa, i think you're both right. most agents seem to think that investments, mutual funds for example, are exclusive only to the rich.

mejo bata pa rin kasi ako saka nung pumunta ako sa Sunlife office, naka shirt at maong lang ako, the usual get-up, kaya nde inakala nung agent na ako na pala yung client nya. buti na lang nag-apologize siya when we started talking, kundi baka naghanap ako ng bagong agent.

earn4real, maganda yung suggestion mo. post kayo ng pics at pede nyo pa gawing avatar para makilala namin kung sino ang mga tao sa likod ng nicks at posts dito sa PMT. pass muna ako diyan, hiya pa ako e hehe.. pero simulan mo na earn4real..  :P

Mac Marra

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Reply #11 on: Mar 14, 2005, 09:27 PM
ang pagkakaalam ko futgiz, maganda ka daw eh :) pwede ka bang ligawan?


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Reply #12 on: Mar 14, 2005, 09:50 PM
oi Mac, off topic ka baka gusto mong i-ban kita dito?  :twisted: hehehe.. porke mas gwapo ka lang sa akin ng konti e. baka mamya akalain pa ng mga tao dito na babae ako. lalakwe po ako..  :lol:

anyway, mutual funds ang topic natin. sino pa ang may mutual funds senyo? saka me alam ba senyo ng Kabuhayan Mutual Fund? i checked the performance of mutual fund companies in the philippines at itong Kabuhayan ang may highest year on year growth sa lahat.


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Reply #13 on: Mar 15, 2005, 07:36 AM
Bakit hindi nyo itry yong mutual sa labas ng bansa natin.marami mutual fund na tradable pa,kaya pag may time na bumaba sya puede mong i transfer sa pataas na fund naman.yayaman ka sa mutual fund kong maghintay ka ng 10-15 years,pero kung nag te trade ka lalong mapabilis.


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Reply #14 on: Mar 15, 2005, 07:45 AM
i checked other foreign mutual fund investments, yung mga nakita ko, mas mababa pa rin ang returns kumpara sa Pinas. most of them kasi pegged sa US stock market, e relatively stable na ang returns dun, between 8-20% a year. kung sa 3rd world country markets na volatile naka-peg yung funds, mejo malaki kita. i know of a certain mutual fund based in the indian stock market which has already earned 40% in just 3 months.

saka ok na rin sa Pinas kasi nakakatulong pa ako sa ating bansa dahil andun yung pera ko. volatile din naman yung market natin at kung maaayos lang ang mga problema natin, tiyak na aakyat dire-diretso ang philippine stock market. in that case, lalaki na rin ang returns ng mutual fund investments sa pinas.


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